SGI files for Chapter 11

Amidst falling revenues and mounting debt, high-end computer maker Silicon Graphics Inc. filed for Chapter 11 bankruptcy protection this morning. SGI has been a significant federal contract player in years past, working with agencies such as NASA, the Defense Advanced Research Projects Agency, the National Oceanic and Atmospheric Administration and the Federal Aviation Administration.

“This is a necessary and responsible step that will strengthen the company and foster a sustained turnaround at SGI," said Dennis McKenna, SGI's chief executive officer and chairman. "This milestone marks a fundamental and comprehensive change."

McKenna was named CEO at the end of January 2006.

This is not the first setback for the California-based company, which has seen its influence wane as consumer-based, high-end graphics technology has gained popularity. SGI’s stock was delisted from the New York Stock Exchange in November 2005 because it had dropped below the minimum $1 per share value. The company is also in the process of laying-off 12 percent of its workers—nearly 250 employees.

Some of the most significant of SGI’s government contracts include several Scientific and Engineering Workstation Procurement III contracts under NASA, which were awarded in June of 2001. All of these contracts will expire on July 29.

In February, SGI and government reseller GTSI joined forces in the hopes of broadening the market for 64-bit Linux solutions. GTSI has similarly reported difficulties, starting with reported losses in 2005 and two rounds of layoffs. CEO Dendy Young suddenly resigned in February, days after the GTSI/SGI announcement was made.

The news has hit SGI stock hard. As of this morning, shares are trading less than 6 cents a share at a 26 cent loss on the OTC Bulletin Board.

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